Rising Oil Prices from Middle East Conflict: No Impact on Malaysians👉 Don’t Get Fooled

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Following the latest escalation of conflict in the Middle East in late Feb, oil prices have started rising.
“Resilience” is now the most trending word among experts, as analysts attempt to understand the potential economic impact of the conflict.

Malaysia is a net energy exporter, meaning we sell more oil than buying them. Hence, compared to other countries, such as Europe and Japan, Malaysia is less likely to be negatively impacted by the higher oil price.

From macro perspective, we are good but what about the micro level – our daily lives?

Will Malaysians really be shielded from higher oil prices just because we produce oil?

Let’s examine this from several angles.

Inflation:

On March 5, Bank Negara Malaysia did not raise/lower the Overnight Policy Rate (2.75%), suggesting they expect inflation to remain manageable for now. Analysts also expect that inflation will remain moderate this year.

Headline and core inflation stood at 1.6% and 2.3%, respectively, in January 2026. In other words, prices went up at around 1.6% ~2.3% in January, compared with a year ago.

Inflation could still rise if global oil prices increase significantly, and the RON95 fuel subsidy price remains capped at RM1.99 per litre under the Budi95 scheme.

Besides petrol oil for our car, Malaysia is a net food importer, with 60% dependency on food from outside of Malaysia. Transporting food to Malaysia needs oil, which mean the price of our rice, onion, dairy product, coffee might go up!

GDP Growth vs Our Salary Growth

Malaysia’s Ministry of Finance estimates GDP growth will be 4%-4.5%, and Nomura maintains its forecast at 5.2% after the escalation of conflict in late Feb.

GDP = Gross Domestic Production = Total value of goods/services produced in a year =A measure of how much the country is producing (more jobs, more money flow)

Many experts are optimistic about Malaysia’s GDP growth. However, what about our salary growth? Does it align with Malaysia’s GDP growth?

Based on latest report (Sep 30th,2025), the average salary growth rate was 4.3% while GDP growth was 5.2%.

This is why having savings and inflation-proof investments remains important, especially during periods of global uncertainty.

It Depends on How Long the Conflict Lasts

The U.S.insists that the military operations will only last for 4-6 weeks. Many countries, such as Korea, Thailand, China, Europe have stockpiles that can last for 2 months ~ 7 months.

If the conflict drags on longer than expected, many countries will scramble for oil, pushing oil prices up. This might boost Malaysia’s revenue (or specifically Petronas’ revenue), however, the price we pay for our oil will increase if subsidy did not change and capped at RM1.99.

Looking back: oil price surged

Historically, oil price surged in 1970s (Oil Crisis), 2003 (Invasion of Iraq), and 2011 (Arab Spring).

How was the economy in Malaysia?

During these periods, Malaysia’s economy generally performed relatively well, with the exception of the 1970s oil shock, when inflation surged globally.

One reason is Malaysia’s position as an oil-producing country.

Prior to 1973, even though Malaysia was a oil production nation, we were highly dependent on imported oil from the Middle East, since Malaysia’s oil has higher quality and premium, we exported our oil to wealthy nations, such as the U.S. and Japan.
Moreover, most oil exploration and refinery companies were foreign companies and they imported oil from the Middle East to refine in Malaysia for our domestic consumption.

The Turning Point for Malaysia

Important new oil and gas discoveries were made in Thailand and Malaysia during 1973.
Plus, Petronas was founded in 1974, and it shifted Malaysia’s oil industry from foreign-controlled concessions to a Production Sharing Contract (PSC) model, granting the state majority control over resources.

Although Petronas cannot control world oil prices, it acts as a stabilizer for Malaysia’s Economy, by providing dividends to the government (owner of Petronas) from oil revenue. Then the government can use the dividends to ease its citizens’ burden such as by increasing subsidies.

Conclusion

So far, there is no significant impact on our lives in Malaysia, thanks to the RON95 fuel subsidy (God Bless the foreigners in Malaysia who are not eligible for the subsidy).

If the conflict in the Middle East prolonged to more than 6 weeks, oil prices could rise further.

This may increase inflation and reduce purchasing power for households.

However, as an oil-producing nation, Malaysia may also receive higher revenue from oil exports.

Ultimately, the real impact on Malaysians will depend on how the government uses this additional revenue. The government will be put into test whether they put their citizens first.
If higher oil profits are used to support households through subsidies or public spending, the impact on daily life may remain limited.